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It didn't work so well at Long-Term Capital Management where they were among the resident geniuses.
by russell 17y ago
It didn't work so well at Long-Term Capital Management where they were among the resident geniuses.
- vomjom 17y agoWhat? Long-Term Capital Management didn't use Black-Scholes. It hired Merton and Scholes, but used a completely different trading strategy. They tried fixed income arbitrage with very high leverage. Black-Scholes ONLY applies to options. The work that won the Nobel Prize had nothing to do with the downfall of Long Term Capital Management. Get your facts straight. Variations of Black-Scholes are still used successfully in the trading world. The only difference is that no one thinks that returns follow a normal distribution anymore (but the Black-Scholes formula allows you to choose any probability distribution you want).
- gaius 17y agoWhat did LTCM in was Russian government bonds - they strayed out of their area of expertise.